VA construction loans can help qualified Veterans finance the purchase of land and the construction of a brand-new home without the need for a down payment.
VA construction loan lenders are challenging to come by. True, $0 down VA construction loans arent incredibly common in todays lending climate. Many lenders, including Veterans United, do not currently offer this kind of financing.
The good news is that there are still options for Veterans to build their dream home and utilize their VA loan benefit.
One time close VA construction loans allow eligible Veterans to finance the construction of a new home in a single loan closing. With a one time close loan, you purchase the land and secure financing for the new build in one fell swoop
This streamlined process means less paperwork and lower closing costs compared to a traditional construction loan But finding lenders who offer true one time close VA construction loans can be tricky.
In this comprehensive guide, we’ll cover everything you need to know about these specialized VA loans. Here’s what we’ll tackle:
- What is a one time close VA construction loan?
- Benefits of one time close VA construction loans
- Qualifying for a one time close VA construction loan
- Step-by-step process to get a one time close VA construction loan
- Tips for finding a lender who offers one time close VA construction loans
- Alternatives if you can’t find a one time close VA construction lender
- Common FAQs about one time close VA construction loans
Let’s dive in!
What is a One Time Close VA Construction Loan?
Also called a VA construction-to-permanent loan, a one time close VA construction loan combines the construction loan and permanent mortgage into a single closing.
With a traditional construction loan, you’ll have two closings – one for the construction financing and another for the permanent mortgage once construction is complete.
With a one time close loan, the construction financing and permanent mortgage terms are baked into the initial loan closing. This helps streamline the process.
Once construction is finished and the home passes its final VA inspection, the loan transitions from construction financing terms to permanent mortgage terms.
One time close VA construction loans require builders to be registered with the VA and provide home warranties. The home plans must also be appraised by a VA appraiser prior to closing.
Benefits of One Time Close VA Construction Loans
One time close VA construction loans offer a few advantages compared to traditional construction loans:
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Fewer closings & lower costs: With just one closing, you avoid duplicate closing costs and paperwork. Typical construction loans require two closings and two sets of closing fees.
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Locked-in interest rates: Your permanent mortgage rate is secured with the initial closing, before construction even starts. This protects you from rate hikes during the building phase.
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Potentially easier to find: Some lenders who don’t offer traditional VA construction loans will offer the one time close alternative. This can expand your options.
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Easier process: You only need to go through the mortgage process once. This streamlines the loan experience versus applying twice for a construction loan and later permanent financing.
For eligible Veterans who want to build, one time close VA construction loans can be an attractive option. But you may have to shop around to find a lender who offers them.
Qualifying for a One Time Close VA Construction Loan
To qualify for a one time close VA construction loan, you must meet the standard VA loan eligibility requirements:
- At least 181 days of continuous active duty service
- Discharged under conditions other than dishonorable
- VA service requirements met
- 90 days active duty during wartime
- 181+ days active duty during peacetime
- 6 years in Reserve or Guard with honorable discharge
- Current member of Reserve or Guard in good standing
- Sufficient income and credit to qualify
- Occupying home as primary residence
You’ll also need to provide additional documentation not typical for a standard VA purchase, including:
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Construction plans: Detailed drawings and specs for the proposed home build.
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Builder’s profile: Background on the builder’s licensing, reputation, and previous projects. They must have a valid VA Builder ID.
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Land survey: If purchasing land, a survey to define the property boundaries.
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Site plan: Map showing where the home will be positioned on the lot.
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Warranty: Builder’s warranty covering defects for one year minimum.
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Permits: Proof proper building permits were obtained.
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Final inspection: Appraiser must confirm home was built according to approved plans.
Providing these construction-specific documents allows the lender to properly assess feasibility and risk when underwriting a VA construction loan.
Step-by-Step Process to Get a One Time Close VA Construction Loan
If you want to build a new home with a one time close VA loan, follow these steps:
1. Find a VA lender
This initial step can be tricky, as relatively few lenders offer one time close VA construction loans. Be prepared to contact multiple lenders to find one able to assist with this type of financing.
2. Determine eligibility
Work with the lender to confirm you meet VA loan requirements. They’ll review your service history, income, existing debts, and credit.
3. Select floor plans
Choose house plans from a builder or architect. The lender will need these detailed construction plans and specs to underwrite the loan.
4. Purchase land
If you don’t already own the lot to build on, now is the time to buy one. This can usually be rolled into the construction loan.
5. Apply for financing
Provide all required documentation to the lender, including income/employment details, VA eligibility, construction plans, permits, etc.
6. Home appraisal
The lender will order a VA appraisal based on the proposed construction plans and specifications. This determines the home’s value once completed.
7. Loan closing
After approval, you’ll close on the construction loan. This locks in financing and allows construction to commence.
8. Construction phase
The builder constructs the home according to the approved plans and specs. The lender disburses payments to the builder at certain milestones.
9. Final inspection
When construction is complete, the home must pass a final inspection by the original appraiser or other VA fee inspector.
10. Loan modification
Finally, the lender modifies the construction loan into permanent financing at the predetermined mortgage rate and term.
While the process involves extra steps compared to a typical VA purchase, the single closing simplifies the construction loan process.
Tips for Finding a One Time Close VA Construction Lender
Very few lenders offer one time close VA construction loans today. Here are some tips to improve your odds of tracking down this type of lender:
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Ask big banks: Large national lenders are more likely to offer VA construction products than small lenders.
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Search online forums: Check if other Veterans have leads on lenders offering one time close VA construction loans.
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Call your regional VA office: The local VA may be able to point you toward active VA construction lenders.
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Look for construction loan experience: Seek out lenders with expertise in construction lending and permanent VA financing.
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Talk to builders: Large home builders may have relationships with lenders who handle one time close VA construction loans.
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Consider portfolio lenders: Small lenders who keep loans in-house tend to have more flexibility than those who sell loans on the secondary market.
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Ask lenders about hybrid products: Some lenders offer alternative construction products that blend one time close benefits.
With persistence and creativity, eligible Veterans can track down a lender able and willing to handle this niche VA loan product.
Alternatives if You Can’t Find a One Time Close VA Construction Lender
If striking out finding a true one time close VA lender, don’t give up. You have options to build a home and still maximize your VA benefits. Here are two alternatives to explore:
Traditional Construction Loan
Get a conventional construction loan for the initial building phase. This likely requires a down payment. Once complete, get a VA cash-out refinance to pull your equity back out.
Two-Close VA Construction Loan
A VA lender provides a short-term VA construction loan to start. Then they give permanent VA financing after the home is built in two separate closings.
These options take more legwork but still allow you to build with a VA loan. Connect with an experienced VA lender to discuss the pros and cons of each approach for your situation.
FAQs about One Time Close VA Construction Loans
Do you still have questions about one time close VA construction loans? Here are answers to some frequently asked questions:
Can I get a VA construction loan with 0% down?
Yes, VA construction loans are available with no down payment for eligible borrowers. The funding fee still applies unless you qualify for an exemption.
What credit score do I need for a VA construction loan?
There is no set minimum credit score for a VA loan. The lender will assess your entire credit profile. Many lenders prefer a 620 FICO score or higher.
Can I use a VA construction loan to build on land I already own?
Yes, you can use
What is a VA Construction Loan?
A VA construction loan is a short-term loan allowing Veterans to purchase land and build a custom home as their primary residence. In many cases, there are separate closings (and associated closing costs) for the VA construction financing and the permanent mortgage.
It is also possible for the construction loan and permanent financing are handled with a single loan at closing before construction commences. This is called a one-time close or VA construction to permanent loan.
Keep in mind, it may be difficult to find a true VA construction loan.
What is the VA Construction Loan Process?
Every homebuyer’s situation looks different, depending in part on the lender they’re working with, the home builder and a host of other factors.
Generally, the process follows along these lines:
